Many retailers offer credit cards in their stores to increase brand loyalty, increase your spending, and, more importantly, to charge consumers massive interest on their purchases. How massive? About twice the annual percentage rate of many major credit cards. What is often overlooked when excitedly purchasing a new flat screen T.V. or appliance is the fact that, despite occasional promotions, consumers end up spending much more than the sticker price.
Take, for example, the Discover Platinum card. At present, the interest rate on this credit card is around 11%. Assuming minimum payments are made on a purchase of $2000, the added expense of paying later comes to about $150 for 1 year. However, the Discover Platinum card also offers a 0% interest rate for 1 year on purchases, which means the added expense is $0 during the first year. Assuming you repay $100 per month during the introductory period, you would have a balance of $800 when you begin paying interest. Continue paying off your purchase at $100 a month, and you’ll only pay about $50, or 2.5% over the course of repayment. This holds true with a wide range of 0% interest credit cards.
The Best Buy credit card, on the other hand, currently charges an interest rate in excess of 22%, or more than double that of the Discover Platinum card. Without a 0% interest rate, paying off $100 a month would result in interest charges of approximately $300 during the first year and an additional $100 during the second year. That brings the total cost of your purchase to $2400, a great deal more than the purchase would cost if paid for in cash or with a 0%, low interest credit card.
I myself have fallen victim to the allure of the store credit card and the discounts that often come with them. The problem, of course, is that the truly important interest rate is often buried in the fine print of the application. I highly doubt a salesperson would point out the fact that you could save a lot of money by not using a store credit card. They are not financial advisors. They are salespeople.
The solution, of course, is to head to your favorite store with a low interest, 0% credit card in your hand. Sure, you may not get a free $25 giftcard. But you’ll end up saving hundreds in the long run. I’ll take the hundreds any day.
